Working families need jobs and growth, not taxation tweaks
21 March 2012
The Chancellor told us that today’s Budget was aimed at “working families”. His Budget speech focused on tax changes to help those on middle and lower incomes, but in doing so he paid less attention to the real issues: growth and jobs.
The best way to help working families is to increase their wages faster than inflation, and to create more jobs. Working families are struggling because the economy is stagnating, leaving wages to fall well behind inflation. At the same time, many families can’t find enough work to start with – many are unemployed, still more are working fewer hours than they’d like. Help with taxes are all well and good, but they’re no substitute for a growing economy.
When it comes to economic growth, today’s Budget never really got going. There were a few interesting messages in there – tax breaks for video games and animation, more money for universities to invest, some management support for growing firms – but most of the talk was a re-statement of existing policy. Osborne did little to dispel Vince Cable’s assertion that the government’s approach to growth is “piecemeal”.
There was one area that stuck out: corporation tax. A reasonable test for the Budget is whether any of the policy announcements cause the OBR to change its growth forecast. The corporation tax change meets that test, with the OBR expecting it to boost business investment by 1%, and thus GDP growth by 0.1% (both by the end of 2016). Now, the corporation tax cut is expensive (an extra £920 million by 2016/17), and we believe the money could be better spent investing in innovation platforms or infrastructure, but it does show that it takes bold policy to have any impact on growth.
Yet boldness is exactly what the Chancellor is lacking. This government has a lot of good ideas on growth – on enterprise, infrastructure, open data, research funding, technology platforms, innovation networks – but the Chancellor doesn’t seem able to join them up or back them with sufficient vigour. The government knows that Britain can only get out of its economic predicament by inventing new things, developing new services, creating new markets and exporting more to the rest of the world. But when it comes up with good ideas to promote these areas, it doesn’t seem to know what to do with them. The result is a Budget that will have very little impact on growth; that lets working families down more than anything else.
This blog was originally posted on The Work Foundation.
Read The Work Foundation's immediate reaction: A Budget of wasted opportunity